How do governments assess private companies for estate tax considering they are not bought and sold and thus the shares to not have a price?


Based on an discussion i had with friends, if its a large private company, but one which is not valued by the market how does the government assess it for inheritance tax purposes? cant i just sell/assess the shares for 100 dollars total even if its worth 100 million?

In: Economics

This may differ from country to country but at least in Portugal you don’t pay taxes based on the value of the company but rather on its profits and on whether they pay dividends.

By extension, you don’t pay taxes just for inheriting (part of) a company.

The company pays taxes, no the taxes, they have gives their assets and liabilities. Inheritance taxes will be based on that.

In the US private companies are assessed for the total value of their assets. The land, the building, every single peice of equpiment and furniture has a value assigned to it and they are taxes for it all. The longer that they have had the equipment the less taxes they pay on it, but for companies which have to stay up-to-date with their equipment that can be an issue.

There are businesses that value companies for purposes such as estate tax. It is not as simple as simply looking at the book value. Google “discounted cash flow analysis” to get a rough idea on how this can work.

For an “ELI5” answer, the company will be valued based on its assets and debts, in addition to giving consideration to how profitable the company is expected to be in the coming years.

In the US, if it is a large private company then it is probably held in trusts so no estate taxes are owed.

Otherwise there are formulas based on assets and profitability and those are used.